What are the EIS and SEIS schemes? And how do they work?
If you are a prospective investor, please ensure you have read up on the EIS and SEIS scheme fully, and are aware of the risks associated with investing in early-stage companies.
What are the EIS & SEIS Schemes, and what have they helped achieve?
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have played their part in helping London and the UK to become “the fourth most invested city in the world for tech, behind the Bay Area, Beijing and New York.” In 2020, there now exists a thriving entrepreneurial and technological ecosystem, which looks set to remain at the forefront of the broader European technology ecosystem beyond Brexit.
Due to the favourable tax reliefs available for UK tax-paying investors, entrepreneurs have had relatively easy access to early-stage funding for a number of years. The EIS scheme was introduced in 1994, and SEIS in 2011, and since its introduction, there has been more than £18bn invested into over 28,000 companies, according to the Enterprise Investment Scheme Association (EISA). Despite the political uncertainty of the last few years, the number of startups in London increased by 2.4 per cent to 221,373 companies, a substantial portion of the 681,704 businesses created in 2019. Data from the Centre for Entrepreneurs’ annual startup index showed that there were 24 startups for every 1,000 citizens in the capital.
Increased access to funding clearly benefits entrepreneurs and founders, but what benefits does it bring to the individual investor?
Aside from supporting a fast-growing and increasingly important section of the UK economy, the EIS and SEIS schemes offer some enticing incentives.
- The lion share of benefits come in the form of Income Tax Relief, allowing investors to claim up to 30% of their subscription amount through EIS (up to a maximum of £1 million) or 50% with SEIS (up to a maximum of £100,000).
- Investors pay no Capital Gains Tax (CGT) on gains made, providing they are held for a minimum of 3 years.
- Loss Relief helps severely limits the downside risk in unfavourable scenarios/outcomes.
All of these combined lead to some of the most effective ways to reduce your annual tax bill.
If you would like more information on the above schemes, you can read the 2019/2020 guide that we produce annually here.